Euro holding up

The euro did slip slightly, to below $1.07 to the dollar, for a time yesterday but regained some ground overnight and is holding steady just above that level this morning. The dollar has made steady gains this week and sterling also fell a touch further against the US currency yesterday, and is now trading around $1.2475.  The EUR/STG cross remains relatively little changed, having been trading in the 0.85p range all week, and this morning is up around 85.8p. In government bond markets, yields reversed yesterday having been trending up in the previous days. German 10-year yields have lost close to 10bps to near 2.55% this morning and UK 10-years were back over 10bps to 4.4% while 10-year US yields nudged down about 5bps to closer to 4.2% currently. Meanwhile, in a somewhat risk off day, equities market had a poor session with the S&P 500 down 0.3% for the day, and the Eurostoxx lost 0.4% while the FTSE managed to close up just a touch, gaining 0.2%. The final estimate of Euro area Q2 GDP disappointed, coming in at 0.1% quarter-on-quarter, down from the initial estimate of 0.3%. A downward revision to export growth – which now shows a 0.7% decline from Q1 – was the principal driver behind the weaker than expected activity in Q2 and in terms of countries both the largest, Germany, and third largest, Italy, contributed little or negatively to growth. With the early data in Q3 also poor, particularly in manufacturing, this data will be of concern to the ECB as, at the last monetary policy meeting, concerns about stagflation were raised and this data makes that scenario more likely. The Bank of England decision makers survey showed that business inflation expectations declined in August. 12 month CPI inflation expectations declined to 4.8% last month from 5.4% in July while longer term 3-year expectations also ticked down to 3.2% from 3.3%. Following Governor Bailey’s somewhat more dove-ish testimony yesterday, markets – for a second day running-  trimmed back the outlook for peak BOE rates with this survey adding to the evidence that the Bank is close to the top of its cycle. New York Fed President John Williams said that US monetary policy is ‘in a good place’ right now and further moves should be data dependent. He said that policy was having the desired effect of easing inflation but the Fed would have to keep watching the data carefully and asking ‘is this sufficiently restrictive’ and do we ‘need to maybe raise rates again’ to maintain the steady progress of shrinking imbalances in the economy. Elsewhere, Chicago Fed President Goolsbee, who is a voting FOMC member this year, said the Fed was ‘very rapidly approaching the time when our argument is not going to be about how high should the rates go ….but how long do we need to keep rates at this position’. Not a lot on the data front today to close out the week. We get industrial production here in Ireland and consumer credit in the US.